How Unions Can Save America

“When the financial history of early 21st century America is written, it is interesting to wonder how historians will characterize the behavior of public sector unions, who were indifferent to deficits, who were incestuous with Wall Street, who rode the waves of unsustainable debt and deficit-fueled phony booms to guarantee their members would enjoy magnificent benefits calibrated on bubble values, but contracted to endure even after the bubbles burst. Will the refusal of all-powerful public sector unions to embrace fiscal reform be seen by future historians as contributing to the collapse of the bond markets, the pension funds – and under the burden of new taxes instead of reform, property values, as the nation’s collateral imploded? At the least, it is fair to say that what today’s leadership of public sector unions decide – whether they embrace concessions for the sake of the nation, or not – is one of the biggest opportunities remaining to avert further financial calamities.”

The point of this is certainly not to hold public sector unions solely accountable for the financial predicament facing the United States. The root cause is a 40 year debt binge that enabled unsustainable economic growth and unrealistic consumer expectations. And everyone is to blame; consumers who borrowed more than they could afford, lenders who pounced on them, and politicians who – in a bipartisan failure of leadership – failed to regulate any of it. But public sector unions now occupy a unique position of economic leverage, because with deficit-fueled debt no longer an option, restoring the solvency of public institutions can only be purchased by raising taxes or by cutting spending. Raising taxes will place burdens on consumers and taxpayers who are already contending with reduced wages, high rates of unemployment, and crippling levels of debt. Cutting government spending is the only option.

In-turn, how government spending is reduced is crucial. By cutting future benefits, for example, such as future pension obligations to government employees, no money is removed from the economy today. Similarly, by freezing all government worker salaries, budgeted salary increases can be eliminated, saving jobs and reducing deficits instead. Public sector unions may have the opportunity, through dramatic concessions on wages and benefits for their members, to literally save the American economy from deflationary collapse.

Is this equitable? Should public sector employees forfeit their generous pensions, suspend their cost-of-living increases, and even take pay cuts? Public employee unions typically argue that government deficits can be closed simply by raising taxes only on wealthy individuals and profitable corporations. Whether or not this argument is valid, it completely misses the point. Government spending – no matter how the revenue is raised – needs to prioritize infrastructure investments, technological initiatives, and national security. Government spending should not be squandered to pay grossly over-market rates of compensation to public sector employees. Primarily using California as an example – since California is the poster-child for an American unionocracy – here are some economic points to back up this assertion:

(1) COMPARING PAY – PUBLIC VS. PRIVATE
The average state or local government worker in California makes $59K in base pay and earns at least another $30K in benefits – $90K per year. California’s average private sector worker makes $41K in base pay and earns about another $10K in benefits – 51K per year. California’s government workers average pay is nearly twice that of the private sector (ref. California’s Personnel Costs, U.S. Census Data, and Reason Foundation Study).

(2) COMPARING RETIREMENT – PUBLIC VS. PRIVATE
The maximum social security benefit is $31K per year, paid to retirees with a final salary of $125K+ per year (17%). Again using California as an example, there is no maximum public sector pension benefit – no percentage or absolute ceiling. On a percentage basis, a public safety pension averages 5x-7x greater than social security. Similarly, a non-safety public pension averages 3-5x greater than social security. On the basis of the actual dollar payout, the disparity is even greater (ref. Social Security Benefits vs. Public Pensions and Social Security Benefit Estimator).

(3) COSTS OF BENEFITS ARE UNDERSTATED
Current year payment obligations for the future pension benefits of public employees assume an over-optimistic rate of investment fund return. If you cut the projected rate of fund return by 50%, you double the funding required. In addition, most government budgets don’t recognize costs for future retirement health insurance. The benefits overhead for public employees is understated on most government budgets by at least 50% (ref. Real Rates of Return, Pension Funding & Rates of Return, and Maintaining Pension Solvency).

(4) FUNDING SOCIAL SECURITY VS. PENSIONS
Social Security serves 80%+ of retirees with benefits averaging 1/3rd of final wages, and projects a 2 to 1 worker/retiree ratio. Public sector pensions serve 20% of retirees with benefits averaging 2/3rds of final wages, projects a 1 to 1 worker/retiree ratio, and retiree payouts begin 10+ years earlier than Social Security. Notwithstanding fund returns, social security requires 16% of salary withheld, pensions require 66% of salary withheld. Total pension payments to public sector retirees, representing 20% of the population, are on track to equal, in absolute dollars, total Social Security payments to the other 80% of retirees in America – four times as much money per recipient. Social Security can remain solvent with relatively minor adjustments, public sector pensions are grossly insolvent and cannot be salvaged without major benefit reductions (ref. Sustainable Retirement Finance and Funding Social Security vs. Public Pensions).

And how did it come to this?

UNION POLITICAL SPENDING
In California there are just over 1.0 million unionized public sector workers (this represents about 55% of California’s 1.85 million state and local workers, but nearly all of them enjoy union-negotiated pay and benefits). Average union dues are at least $750 per year per member. At least 33% of union dues are allocated to political activity – lobbying & election campaigns. This means public sector unions are spending $250 million per year on politics in California. There is no comparable source of political spending, and to the extent other special interests participate financially in politics, their agenda is diverse, and rarely if ever devoted to fighting the public sector union agenda of more government workers, and higher government worker compensation packages (ref. Public Sector Unions & Political Spending).

It is difficult to overstate the impact of public sector unions. For years, they have coerced politicians who they can make or break with massive political spending into granting unsustainable and unwarranted rates of pay and benefits for public employees. In California, their unfair advantage in political spending has given them effective control of most state and local politicians. The union work rules, ostensibly to protect worker’s rights, have lead to an unaccountable workforce, damaging the effectiveness and efficiency of all our public institutions – what public sector unions have done to public education is a tragic example. Public sector unions undermine democracy and have bankrupt our state and local governments.

Public sector unions hold the key today to saving the economy of the United States, because with their consent, we can freeze government worker wages, even reducing them in some cases, and we can reduce their defined retirement benefits to something moderately greater than social security instead of 3x-7x social security. Eventually, with reformed work rules, we can begin to downsize and improve the quality of our government workforce, and if we act soon, that may be even possible mostly via attrition. If all of this is done, government deficits will quickly disappear without decimating government programs and services, or precipitously lowering current worker pay. This would enable us to actually begin shrinking, year over year, government debt – which is the most persistent and alarming category of debt in the American economy. And as this occurs, we can begin to use government surpluses to make genuine investments in our future.

27 comments to How Unions Can Save America

An interesting and informative article. As a retired Caltrans employee I no longer have a horse in this race.
If I was still employed and had years to go I would gladly increase my contribution to 10% from 5% to keep Calpers solvent. With one caveat.
No more pension holidays for the State. They never pay less than ten percent.
It is not logical for the State to take a pension holiday when times are good and then play “poor, poor me” when the economy turns down, as it always does, because they now have to come up with more money out of dwindling resources.
If you will look at page 15 of this article you will iommediately see what is a large problem for Calpers:

While the overall intent of this article has merit, there is so much misinformation in here it makes it difficult to know where to begin.

Perhaps the easiest road to take to solving budget problems is for the public not to vote in every feel good program that is proposed. Those programs take people to run, and those people get paid. The feel good programs of welfare, bullet trains, stem cell research, and others should either not exist, or in many cases be done in the private sector. This would negate the bloated budgets, and any question of what is a fair pension – as the job wouldn’t exist in the govt sector to begin with.

In the end, it has become very tiring watching those who made 300k/year (mortgage lending staff for instance) complain about those who make 70k a year. While the private sector reaped the rewards of an out of control economy, those working for govt didn’t even see COLAs. Now that these govt employees are going to collect their small pensions, those who made enormous sums of money in the private sector (and spent it like there was no tomorrow) whine. There are those who say ‘but those public pensions are over 100k/year’. No they arn’t. A few are, and even most of the ones that are – are justified. As far as the criminal element like those in Bell – prosecute them. That is why we have laws.

but especially for the Greedy Civil Servant Bloggers insisting on MORE & MORE & MORE.

We MUST either reduce pensions & benefits for CURRENT employees or Outsource 90+% of them to end the “employment relationship” and the associated future growth in these pensions/benefits ….. and Time is of the essence !

I would agree with ToughLove if State contracts were on an even playing field. Engineering contracts certainly are not. Caltrans interviews consultant firms and comes up with a short list. They then select a firm, paying no attention to actual bottom line costs. Then Caltrans points out all the errors in design for free and the firm charges the State for correcting their own mistakes.
If engineering contracts were awarded on the basis of lowest bidder and the contractor was required to fix their own mistakes on their own dime, and be less expensive than State forces, I would agree with you. This is not the case.

I agree with one of the previous comments that this article is full of misinformation. Most public employees across this country do not have those large retirement benefits, and reducing average public pensions will have devastating repercussions on the economy. Below are two links people should check out.

Maria – I respectfully disagree. The misinformation is coming from the sources you cite, the innocuous sounding “National Institute on Retirement Security” and the “Economic Policy Institute.” These organizations are funded by public employee unions and public employee pension funds (i.e., they’re funded by taxpayers against their will), and they spew out reports with conclusions that are either ridiculous – public employee pension funds are not insolvent, or highly debatable – public employees are not overcompensated.

Moreover, you don’t explain your assertion that “reducing public employee pensions will have devastating impacts on the economy.” As explained, reducing payments from taxpayers to Wall Street, which essentially is what happens when pension funds collect approx. $250 billion per year from government entities for public employee pensions, will have minimal impact on the economy compared to other ways to restore solvency to governments. This is because these are future benefits that are being curtailed. Nobody is suggesting we take away benefits from current public sector retirees. Right-sizing the retirement benefits for public sector employees, using that other taxpayer funded benefit, Social Security, as an example, would allow taxpayers to use the money now, instead of pouring it all into Wall Street for future disbursements.

Depending on where you live, some of your other contentions may or may not be true. But in California and many other states that are controlled by public sector unions, the cost for public services is much higher than it needs to be, and this must be challenged.

Quoting Charles Sainte Claire ….”I would agree with ToughLove if State contracts were on an even playing field. Engineering contracts certainly are not. Caltrans interviews consultant firms and comes up with a short list. They then select a firm, paying no attention to actual bottom line costs. Then Caltrans points out all the errors in design for free and the firm charges the State for correcting their own mistakes. If engineering contracts were awarded on the basis of lowest bidder and the contractor was required to fix their own mistakes on their own dime, and be less expensive than State forces, I would agree with you. This is not the case.”

Charles, According to the Us Gov’t Bureau of Labor Statistics, with the exception of the highest level technical & professional occupations (e,g, doctor, and perhaps engineers, such as yourself), the “cash pay” alone is higher in the Public (not Private) sector, and the pensions & benefits are universally significantly higher in the Public sector.

I would like to hear you response to the FOLLOWING QUESTION (which should be qualified so as to likely not be accurate for the 1 or 2% of the highest level professional/technical Civil Servant positions):

At EVERY pay level (from the $25K worker to the $300K executive), the value of the employer (meaning TAXPAYER ) paid-for share of the “typical” Civil Servants’ retirement package (pension & retiree healthcare) is 2-4 times greater in value than that of the employer paid-for share of a comparably paid Private Sector worker retiring at the SAME age and with the SAME years of service …. and that 2-4 times rises to 4-6 times for “safety workers”.

You can try to spin this any way you like, but it will still be unaffordably expensive, unsustainable, and grossly unfair to taxpayers whose contributions (together with the interest earned thereon) pay for 80-90% of these pensions & benefits.

“the “cash pay” alone is higher in the Public (not Private) sector, and the pensions & benefits are universally significantly higher in the Public sector.”

That is not the point I was making. Private contruction engineers working as consultants on highway projects make just about the same in salary as Caltrans employees and often are well versed in inspection and contract law. General payroll costs are about the same. However, their benefits including pension are considerably lower. Further, when work slows down they can be easily released from the payroll.
This sounds on the surface like a good idea.
But it doesn’t work that way. I know because I processed the billing from a 3.5 million dollar consultant inspection contract. The markups for this oncall work are incredible. The consultant gets paid for all kinds of overhead expenses that don’t really exist. For every dollar the consultant bills in actual salary and normal payroll costs, SS, Workman’s comp etc., they get another $1.50 for these imaginary costs.
When the consultant shows up to work we pay the lease on his truck, provide necessary supervision, tools, forms, manuals, etc.
Then his office bills us another 150% for non-existant overhead. And to add insult to injury, someone comes out from their office for a couple of hours once a week and we get billed for that with 150% overhead. We are not done yet. Their office person charges us for making out their payroll and they charge 150% on That! What overhead?!

“You can try to spin this any way you like, but it will still be unaffordably expensive, unsustainable, and grossly unfair to taxpayers whose contributions (together with the interest earned thereon) pay for 80-90% of these pensions & benefits.

Why do you think this is “fair””

I wasn’t trying to duck your question. I had two different points to be addressed. Saying that the taxpayer provides 80 to 90% of the retirement, plus including interest isn’t accurate. Once the taxpayer has paid into the fund, he is out of the equation. Actually, over time, the employee and investments pay for about 80% of a miscellaneous State retirement. You can’t count investment income as if it is new dollars coming out of the taxpayers pocket over and over again.
I agree there is something unfair going on here. But is it the fault of State government paying me what they agreed to forty years ago? Or is there some fault here in the private sector taking away defined benefit retirements?
Oh, yes, I got about an 18% increase due to AB400 in 1999. If you want to start talking about huge increases, go talk to the guys with the badges.
Why wasn,t anyone discussing this ten years ago, or 20 or 30? Because if the economy hadn’t taken a nosedive, which it will recover from, and the State and local governments hadn’t taken a “pension holiday” from 2000 to 2004, Calpers would be 100% funded and there would be nothing to talk about.
Maybe you should look at whatever it was the Legislature blew all that money on during those years.

Charles, Thank you for responding to my “is this fair” question. I guess we’re going to have to “agree to disagree” on whether investment earnings on employer (i.e., taxpayer) contributions are really another element of taxpayer contributions. I think it is and you do not. Ok, but consider this simplified example …..

A taxpayer’s share of the pension cost needed for payout in five years to a single retiree is (say) $1,000. Two options for meeting that obligation are pay-as-you-go and pre-fund. Under pay-as-yo-go, the taxpayer simply contributes $1,000 in five years. I’m assuming that you would agree that the $1,000 indeed comes from the taxpayer.

For simplicity, lets assume that the Pensions Plan earns 7.5% annually on invested assets, and as a point of fact, a deposit of $696.56 today will grow at 7.5% annually to $1000 in 5 years. So, on the “pre-funding” basis the taxpayer could contribute $696.56 today, which together with the $1,000-$696.56=$303.44 investment earning geneated over the next 5 years would grow to the target $1,000 needed in 5 years.

My point is that the taxpayer can contribute the $1000 (and all such other required contributions) when due or pre-fund them with a smaller amount today, tomorrow, etc., and forfeit the interest that this taxpayer would have kept for himself. Either way, the taxpayer is contributing $1,000.

Charles: To add to Tough Love’s point – if the employee and the employer (taxpayer) were to split the required contributions 50/50, as is the case with social security, there would be far less of an ethical issue to contend. As it is, the employee contributions are negotiated and fixed, and rarely if ever approach 50% of the contributions.

More ominously for the taxpayers, when CalPERS (or whoever) changes the annual fund input amounts required, the entire burden falls on the taxpayer. Unions have suggested it is a big concession for employees to raise their contribution as a percent of salary from, say, zero or 5% to 10%, but this misses the point. The pension fund contributions required in total may have risen from 30% to 70%. And to that point, Tough Love’s example of 7.5% interest is misleading. If you use a more realistic pension fund return in this new era of de-leveraging (which means the governments and consumers of the world have currently used up all of their borrowing capacity, which means corporate equity growth which depends on corporate profit growth is slowed because consumption cannot rely on borrowing) of half the 7.75% that Tough Love (along with CalPERS and most other major pension funds) used in his projection, you start with a much larger number. That is, instead of being able to turn $696 into $1,000 in five years at a rate of 7.75%, at a rate of 3.75% you would need to invest $802 to end up with $1,000 in five years.

Tough Love’s example further understates the problem because we aren’t dealing with five year cycles, we’re dealing with 30 year cycles; the length of a career during which these monies are being invested. To arrive at a $1,000 fund balance after 30 years, at a rate of 7.75% you would have to invest only $114 in year zero. But at a rate of 3.75%, you would have to invest $331 in year zero, nearly three times as much.

The point of all this is stark: It is false to suggest “concessions have been made” because a public employee share of pension fund withholding has been raised from 5% (or zero percent) to 10% of their salary, when in reality, reduced long-term rate of return expectations dictate a required increase in the total contribution from 35% to 70% of salary. The employee burden in such “concessions” goes from 5% to 10% of their salary, and the taxpayer’s burden goes from 30% to 65%. Such a small increase in the employee’s share is therefore ridiculously inadequate, and in terms of “reform” is a farce.

Ed, Thanks for the expansion one my addressing only one of the many issues surrounding the pension shortfall/design/funding.

In addition to the good ones you added, there is the extreme example of when pension formula increases apply to PAST as well as future years of service (i.e., retroactive increases). Let’s consider an extreme example when the police pension formula was increase from 2% at 50 to 3% at 50 retroactively. For the policeman with 29 years of service (and at least age 49, and assuming his final annual pay is $125,000), under the old formula he could retire in one year (with 30 years) with 60% of $125,000 = $75,500 annually (CLOA adjusted thereafter). The present value of this “life annuity” (assuming he is in his early 50’s and inflation runs at about 3% annually) is about $1.9 Million.

After the retroactive increase, he will now get 90% of the $125,000 or $112,500, with a present value of roughly $2.8 million.

And what has the officer paid for this increase of $900,000 ? Nothing, in other words, for working that one additional year, the officer “earned” (from Taxpayers) his pay of $125,000 plus the (100% taxpayer funded … eventually) $900,000, or over $1 Million.

You use several reasons to show why 7.75% annually is not attainable, however you leave out the devaluation of the dollar against foreign currency, the escalating costs of raw materials, and the compounding of the interest on the national debt. All these factors will make the local Wal*Mart into Sachs 5th Avenue in the not to distant future. The market capitalization of companies represented on the various exchanges will explode upward as a result – this will of course have dire consequences to the consumer. At the same time, it will fund the pension obligations of most PERS systems across the country well past 100%. It is easy to forget in these times that a ‘defined’ benefit plan is that – DEFINED. The members of such plans are promised a specific payout, and nothing more (disregarding COLAs of course). This has happened in the past, and govt entities have taken pension holidays as a result (a savings to tax payers). If that same govt worker was in a 401k plan, he/she would reap the benefits of an exploding market simply because they are NOT in a defined benefit plan. So it works both ways – something that is easy to forget at times….

In addition, republicans wanted social security moved to a market based system not so many years ago. Claiming that the move would increase payouts to SS recipients. In the long term it would of course. So the other point of this is, why is it acceptable to republicans (or conservative economists) to have SS in a market based system, but not acceptable to have a defined benefit plan for govt employees which actually limits the payout based on the plan?

California has reaped great rewards from the payout of CalPers to its retirees – much discretionary spending that made jobs that otherwise would not have existed. Ed, do you not like job creation? (joke of course)

It is too bad that in this society, people who work for a living are chastised due to PENsIon(S) envy. Yes – my pension is bigger than yours, but if you were to take your eyes off mine, you might find yours perfectly acceptable.

If we were to focus on those who don’t work: welfare, illegals on SS, workman comp scammers, and the new breed of unemployment leeches – I believe we would be getting to the real problem with balancing the budget. FREELOADERS. Schwarzenegger doesn’t talk about that. He doesn’t often mention the fact that the move from defined benefit to 401K type system is a move from CalPers to the very WallStreet crooks who nearly bankrupted the country. It is just a way to shift a bunch of money (this state and others) to the Bangsters. To believe otherwise one has to almost purposely cast a blind eye.

Boprn: To the extent there is a cap on cost-of-living increases to pensions you are absolutely right, the pensioner is at risk in the event of sustained inflation. I haven’t studied the plans enough to generalize; I do know some pension COLAs are capped at 2% per year, which agrees with your point, but I also know some of them have no cap. Where the center of gravity falls on that is something that would be interesting to learn.

Most of my analysis of pension solvency, to the extent it addressed funding requirements, reduced the return assumption to the real return, i.e., the nominal return less the rate of inflation. Of course you’re right, if there is cap on pension COLAs that is below the rate of inflation for more than a few years, the sinking pension ship will suddenly float again. This scenario, unlike the one I’ve been describing, would rescue taxpayers at the expense of pensioners. It would be hard to imagine a scenario that would split the difference – just enough inflation to rescue taxpayers without impoverishing pensioners – but we can hope.

From the standpoint of the U.S. or even the global economy, the larger point is whether or not you can have increasing percentages of consumption fueled by remittances from investments. How much collectively funded retirement security can come from market returns vs. pay-as-you-go tax assessments? With social security, where the notion there is some sort of “trust fund” is thoroughly debunked, the demographic challenges are more obvious, which is why I tried to examine the pay-as-you-go model for social security vs. pensions in the post “Sustainable Retirement Finance.” But just what level of real return any passive investment can generate, when there are so many investors chasing fewer and fewer investment opportunities, correlated with the fact there is a steadily increasing percentage of retirees in the population, is a serious question. Particularly since we have now relied on debt to fuel economic growth – which in-turn fuels growth in equities – as much as we possibly can. Our debt-saturated economy represents yet another claim by passive investors over productivity and consumption. For these reasons I have never supported privatizing social security. Social security is the appropriate compromise in a market economy that values limited government, because it represents an affordable level of taxation on current workers to supplement whatever resources and assets retired people will otherwise rely on. If you want to have a comfortable retirement, pay off your debts, pay off your mortgage, and make some sound investments – if you do that, social security can provide just enough of an edge to make your retirement comfortable. The level of public pensions we currently have, where they exceed social security by 2-7x depending on income and what sort of job you held in the public sector, has a corrupting effect on the financial obligations of a citizen who ought to be preparing for retirement. If we were able to design a public sector pension system that did not have to rely on returns from Wall Street investments, we would address many of these concerns.

On a related point, why should public sector unions, who pretty much control pension funds, be allowed to use the power of these pension funds to intimidate corporations? Notwithstanding the fact they are biting the hand that feeds them, they are distorting the markets and ultimately are driving returns lower. And of course their left-wing agenda in the boardroom via proxy through these pension funds will not help these corporations remain profitable.

As for your comments regarding welfare, immigration, workman’s comp., etc., I am in total agreement with you.

“The consultant gets paid for all kinds of overhead expenses that don’t really exist. For every dollar the consultant bills in actual salary and normal payroll costs, SS, Workman’s comp etc., they get another $1.50 for these imaginary costs.
When the consultant shows up to work we pay the lease on his truck, provide necessary supervision, tools, forms, manuals, etc.
Then his office bills us another 150% for non-existant overhead. And to add insult to injury, someone comes out from their office for a couple of hours once a week and we get billed for that with 150% overhead. We are not done yet. Their office person charges us for making out their payroll and they charge 150% on That! What overhead?!”

I haven’t received a response from this bit of input. This is not hearsay, I actually had to approve the billings, much as I thought they were unreasonable.

If I hadn’t seen it myself, I would have thought it was an incredulous story. Yet this never seems to be covered by the media.

If you want to follow the “privatize it” drumbeat, beware of what you wish for.

ToughLove, I do begin to see your point that the taxpayers money could have been invested for their own benefit.

Charles, You seem to be justifying two wrongs with a right. Perhaps if the politicians who approve these excessive contract terms weren’t so willing to accept campaign contributions (directly or indirectly) from these same contractors ….. or better yet, if they were ironclad barred from doing so, under penalty of a guaranteed prison term if they did so ….. the motivation to approve such excess would disappear. It’s a you-scratch-my-back, and I’ll scratch-yours sort of arrangement.

Are you justifying the excessive total compensation (pay + pensions + benefits) for Civil Servants BECAUSE in certain contractual arrangement there is even MORE excess? Excess in contracting is a separate issue from excessive pensions. BOTH need serious fixing, pronto.

So there is a built in loss (of course unless there is deflation). Once the loss hits magic number, dependent on plan, then COLAs kick in at CPI.

Taking that into account, that gives CalPers a 25% cushion on their actuarial assumptions, if your tracking on what I’m saying. Throw in that about 50% of govt employees don’t stay until retirement, and you have another large cushion built in.

Considering those two built in to the retirement scenario, what are your thoughts?

Boprn: This is interesting data. The 75%-80% “buying power parity” is a pretty good formula. Inflation will hurt a lot of people, so letting the parity stop-loss kick in at 75% or 80% is a good compromise. I’m not sure the fact that 50% of government employees not staying until retirement is going to help on the solvency issue, unless they retire before they have vested whatever they have accrued in terms of a pension benefit. If they vest at, for example, 2.7% per year, they still have the benefit, which I assume will apply to the salary they made when they left, but would be deferred until they reached retirement age. It is interesting to learn if, in these cases, the final salary base is upwards for the inflation over the years between when they left their job and when they reached a qualifying retirement age – I have to assume it would but I don’t know. People leaving a pensionable job prior to retirement wouldn’t be able to spike their pensions as easily, but the solvency analysis done here never assumes spiking anyway.

Returning to the stop-loss at 75% to 80%, as you note, this is an example of some of the the nuances that can help to keep pension funds solvent in the event of inflation – again, however, if the real rate of fund return drops from the currently projected 4.75% (CalPERS) to half that, a 75%-80% stop-loss will not be enough without other changes to the formulas. One of the biggest things missing from the current public employee pension formulas is a ceiling. In the military there used to be a cap at 75% of salary, but they got rid of that a few years ago. There should be a cap – 75% of final (un-spiked) salary is a good percentage cap; there should be an absolute dollar cap set at 2 or 3x the maximum social security benefit as well. Pensions should not be set up to provide six-figure (today’s dollars) retirement benefits. The formulas should include caps of some sort to make it progressive the way Social Security is, i.e., the more you make, the lower a percentage of your final salary you can collect in a pension. This, along with a 50/50 contribution, where employee’s contribute via withholding half of the amount necessary to fund their future defined benefit (yes, it would be subject to adjustment under this formula, and that would be an inexact science), would go a long way towards guaranteeing our public employee pension funds remain solvent.

Unions and their brothers and sisters together can return the US to prosperity. Good pay, job security, proper health care and a pension that allows you to live in dignity should be a right for all Americans. The decline in the US from world power to world pauper goes hand in hand with the erosion of the union labor base. Bring back more unions, more employee rights and stronger negotiations on pay, work hours, maternity leave etc. and we will once again have a foundation for a stong and free nation

NEW YORK (AP) — The euro moved above $1.39 Wednesday for the first time since February, while the yen struck a 15-year high. The dollar is sliding broadly because investors expect that the Federal Reserve will increase its support for the U.S. economy, driving down interest rates and dampening the currency’s appeal for investors.
————-http://finance.yahoo.com/news/Dollar-tumbles-broadly-as-Fed-apf-1264751161.html?x=0
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Ignorance rules…Many critics of public employee unions do not understand that the public employee unions DO NOT ADMINISTER the pension plans. That is done by CALPERS and STRS administrators in
California ( or their equivalent in other states) who have been stealing us blind for many years. They are like the Mafia controlled AFL/CIO union thugs who control billions of dollars. The AFL/Cio and other unions who have been allowed to control employee pension plans have helped destroy confidence in America.

Please understand, the unions that represent public employees only get their graft money from the poor employees who support them. The private unions steal from everyone, employees , government and private pension plans.

The prison guards and police unions are a good example. Yes, they have acquired too much power, but they mostly victimize their own members. They do not control the BIG money in the pension plans. That is how the private unions have become so powerful.

So, get a grip folks. The problem is not the unions, they are just you and me. The problem is the political party who puts down the middle class, while telling them lies. I guess some of you suckers have bought into the lies. I support President Obama. You should too.

Sure, Public Sector Unions do not “administer the pension plans” .. as you said….. but Public Sector Unions use members dues to guarantee election of legislators/politicians who will give the Unions what they want …. more pay, more pensions, and more benefits …… 80-90% of which is paid for with Private Sector taxpayers’ money.

As I said earlier, Public Sector Unions are a Cancer on society and should be eliminated.

You support your conclusion with circular reasoning which requires proof, but your conclusion is based on your hypothesis being true before you prove it.

“Sure, Public Sector Unions do not “administer the pension plans” .. as you said….. but Public Sector Unions use members dues to guarantee election of legislators/politicians who will give the Unions what they want …. more pay, more pensions, and more benefits …… 80-90% of which is paid for with Private Sector taxpayers’ money.”

I would rather have more control over how my employee organizations money is spent. I would also like to have the option of not paying to a union altogether (fair share is a joke, you save a dollar a month). But that is another subject. I do know that employees in SEIU have attempted to get an accounting of how their money is spent and get stonewalled.

You are tapdancing around an issue here. Once I receive my wages, the money is mine. Not the taxpayers. “80-90% of which is paid for with Private Sector taxpayers’ money.” Yes, that is the source of the money, but I traded work and time for it, it is no longer the taxpay’s.
If I buy a house the taxpayers don’t own 80-90% of it.

Private Sector taxpayer contributions (together with the interest earned thereon) fund 80-90% of the cost of Civil Servant pensions that are 2-4 times (4-6 times for safety workers) greater in value than those of COMPARABLY paid Private Sector workers…. with these Civil Servants getting to retire 10-20 years earlier.

My point is just as clear. When I get my check the money is mine. The money the State pays into my retirement is nothing other than deferred compensation so it is also mine. And any money going forward from investments is mine.

If you want to talk about retroactive raises in pensions or the discount rate used by Calpers, knock yourself out, but you will never convince me that the contract I worked under for 40 years is wrong.